Slide 1: Financial Discussion
Financial Discussion James Kavanaugh Senior Vice President and Chief Financial Officer IBM 1
Slide 2: IBM 2018 Investor Briefing
IBM 2018 Investor Briefing Our differentiated value proposition is driven by innovative technology, industry expertise, trust and security — delivered through an integrated model IBM is repositioned to lead IBM’s value is driven through IBM’s differentiation results in high value segments of buildin
Slide 3: High value profitable business positioned to deliver value
We are a high value profitable business positioned to deliver value to our clients and our shareholders Integrated Model 2017 Innovative Technology $79B Revenue Industry Expertise 47% Operating Gross Profit Margin Trust and Security $13B Free Cash Flow $6 Annualized Dividend per Share 17% Return on
Slide 4: Increased investments in key emerging high value segments while returning capital
We have increased investments in key emerging high value segments while continuing to return capital to shareholders 2012-2014 2015-2017 ~$17B • AI market leadership with Watson Research and • Expanding security capability Returned Returned to Returned shareholders Development • Modernizing systems
Slide 5: Increased investments and portfolio actions drove a different business mix
Our increased investments and portfolio actions have driven a fundamentally different business mix 2007 2014 2017 Software 20% 28% 31% REVENUE MIX 75% 87% 90% Services 55% 59% 59% Hardware & IGF 25% 13% 10% 47% 58% 61% Annuity Mix Annuity Mix Annuity Mix 42% 51% 47% Gross Profit % Operating Gross Pr
Slide 6: … while building new business models
… while building new business models 2007 2014 2017 2017 Software Cognitive 20% 28% 23% Solutions 31% REVENUE MIX 75% Technology 87% 90% 43% Services & Services 55% Cloud Platforms 59% 59% Global Business 21% Services Hardware & IGF 25% 13% 10% 13% Systems & IGF 47% 58% 61% $37B Annuity Mix Annuity
Slide 7: We have redesigned our operating model and changed the way we work
We have redesigned our operating model and changed the way we work Streamlined Management System Scaling agile and new ways of working Improve speed and responsiveness to clients Strengthen capacity for rapid innovation 35% Reduction in layers WORKF ORC E STRU CTU R E ~50% of employees are new 30% I
Slide 8: IBM has made bold changes to reposition for the future
IBM has made bold changes to reposition for the future Repositioned For The Future + Invested in key emerging high value segments and rebuilt innovation pipeline + Portfolio actions have driven a fundamentally different business mix + Built new business models for the new IT era + Remixed skills and
Slide 9: Building on our enterprise leadership and integrated model
… building on our enterprise leadership and integrated model Repositioned For The Future IBM Differentiation + Invested in key emerging high value segments and + Innovative technology enables market leadership rebuilt innovation pipeline + Leverage industry expertise to provide integrated + Portfoli
Slide 10: IBM leverages innovation and expertise to build new platforms and solutions
IBM leverages innovation and expertise to build new platforms and solutions while modernizing our enduring platforms Integrated Model Value Drivers Innovative Technology 1. Integrated model and trusted client relationships 2. First mover in the most promising, emerging technologies Industry Expertis
Slide 11: Integrated model and trusted client relationships provide competitive advantage
1. IBM’s integrated model and trusted client relationships provide competitive advantage Integrated IBM Model… ...Drives Value for Clients and IBM Industry and Integrated Solutions 95% 90% of Fortune 500 Health Financial IoT Security … Go To are IBM clients of Top 100 clients purchased Market + Serv
Slide 12: IBM is a first mover in emerging technologies, e.g. IBM Blockchain
2. IBM is a first mover in the most promising, emerging technologies e.g. IBM Blockchain Disrupting Multiple Markets Value Drivers e.g. $2T Global Payment & $1.8T Global Supply Chain by 2020 + Industry’s first enterprise-grade blockchain platform for permissioned networks + Leverages IBM Z and perva
Slide 13: Unique ability to provide integrated industry solutions, e.g. Watson Health
3. IBM has the unique ability to provide integrated industry solutions e.g. IBM Watson Health ~$360B of Health Value Drivers Total Addressable Market Opportunity by 2020 + Leveraging the IBM Cloud designed for Health (HIPAA / GxP) IBM Integrated Model + 80+ Watson AI Services specifically built for
Slide 14: Leading market position in high value segments, e.g. IBM Security
4. IBM has a leading market position in several high value segments e.g. IBM Security ~$120B of Security Value Drivers Total Addressable Market Opportunity by 2020 + Industry’s largest integrated product and services business IBM Integrated Model + Digital immune system for compliance and threat pro
Slide 15: Strong R&D track record through multiple technology eras, e.g. IBM Z
5. IBM has a strong R&D track record through multiple technology eras e.g. IBM Z Continuous Reinvention IBM Z Value Drivers of Enduring Platforms for Business + Industry first pervasive encryption capabilities Workload as measured by installed Million Instructions Per Second (MIPS) + Open and connec
Slide 16: Deep expertise with unrivaled global customer base, e.g. IBM Services
6. IBM has deep expertise with unrivaled global customer base e.g. IBM Services [GTS + GBS] Stable Outsourcing Backlog Outsourcing Value Drivers moving clients to the future + Market leader with 2x the share of nearest competitor GTS + GBS + Expertise and innovation-based leadership $78B $79B Outsou
Slide 17: IBM's differentiation results in high value and financial returns
IBM’s differentiation results in high value and financial returns Integrated Model IBM Longer-Term Model Revenue Low single-digit growth Innovative Technology High Value Pre-Tax Income and Mid single-digit growth Industry Expertise Financial Returns Earnings Per Share High single-digit growth Trust
Slide 18: Deliver pre-tax income dollar growth
Deliver pre-tax income dollar growth Mix and Scale Operating Leverage ~2 pts of annual PTI dollar growth ~3 pts of annual PTI dollar growth Deliver segment revenue models Expand services margins Scale efficiencies, net of as a Service mix Drive enterprise productivity Mid Single-Digit PTI Dollar Gro
Slide 19: Revenue model of low single-digit growth driven by as a Service momentum
IBM revenue model of low single-digit growth is driven by as a Service momentum Mid-Single Digit Cognitive Solutions Technology Services and Cloud Platforms PTI Dollar Growth Revenue Growth: + Scale new platforms and Revenue Growth: + Shift clients to cloud solutions + Capitalizing on new Mid Single
Slide 20: Revenue model driven by as a Service momentum (longer-term model)
IBM revenue model of low single-digit growth is driven by as a Service momentum Mid-Single Digit Cognitive Solutions Technology Services and Cloud Platforms PTI Dollar Growth + Scale new platforms and + Shift clients to cloud Revenue Growth: solutions Revenue Growth: + Capitalizing on new Mid Single
Slide 21: Services deliver higher margin through AI differentiation and efficiencies
Services deliver higher margin through AI differentiation and efficiencies Mid-Single Digit PTI Dollar Growth Technology Services & Cloud Platforms Global Business Services ~ 50bps Margin Expansion Per Year ~ 50bps Margin Expansion Per Year Operating Leverage Productivity and Talent Optimization Pro
Slide 22: Enterprise productivity fuels investment and contributes to profit growth
Enterprise productivity fuels investment and contributes to profit growth Mid-Single Digit PTI Dollar Growth Spending Profile Initiatives + Unlock new value through a cognitive enterprise support model Operating Leverage Productivity + Design end-to-end workflows across the enterprise + Embed digiti
Slide 23: Strong free cash flow and balance sheet provide financial flexibility
IBM’s strong free cash flow and balance sheet provide financial flexibility Continue to invest for future Last 3 Years Longer-Term Model + R&D to expand innovation pipeline Free Cash Flow 104% >90% + Capital to build out Cloud and as a Service Realization + Acquisitions to strengthen IBM platforms a
Slide 24: IBM is well positioned to grow and deliver longer-term financial model
IBM is well positioned to grow and deliver longer-term financial model IBM Longer-Term Model + Our differentiated value proposition is driven by innovative Revenue Low single-digit growth technology, industry expertise, trust and security, delivered through an integrated model Pre-Tax Income + IBM i
Slide 25: 25
25
Slide 26: Notes
Notes Note 1 Gross Profit Margin and Free Cash Flow are non-GAAP measures. For additional information on these non-GAAP measures, please refer to slide 27. Note 2 Annualized Dividend equals most recent quarterly dividend per share multiply by four. Note 3 ROIC is based on GAAP from Continuing Operat
Slide 27: Forward-looking statements and non-GAAP information
Forward-looking statements and non-GAAP information Certain comments made in this presentation may be characterized In an effort to provide additional and useful information regarding as forward looking under the Private Securities Litigation Reform Act the company’s financial results and other fina
Slide 28: IBM Investor Briefing 2018
IBM Investor Briefing 2018